What's the difference between a preapproved auto loan and a prequalified auto loan

Key features of prequalification

• Soft credit check: Lenders typically perform a soft inquiry on your credit, which doesn’t affect your credit score.
• Estimated loan terms: Prequalification provides an estimate of the loan amount, interest rate, and terms you may qualify for based on the information you provided.
• Quick process: Since it doesn’t require as much documentation, prequalification is often faster and easier than preapproval.

When to use prequalification

Prequalification is helpful early in the car-buying process, especially if you’re exploring your options or aren’t yet ready to commit to a specific loan. It gives you a general idea of your purchasing power without impacting your credit score. With a prequalification from Affinity Federal Credit Union, you can gain insight into your potential loan amount and budget, so you can better assess which cars might fit your finances.

What is a preapproved auto loan

A preapproved auto loan is a more formal commitment from a lender, providing a specific loan amount, interest rate, and term. During the preapproval process, lenders review detailed financial information, including your credit report, income, and employment status, to provide a more precise loan offer. Preapproval indicates that you are a qualified buyer, and the lender is committed to lending you the approved amount, pending final details.

Key features of preapproval

• Hard credit check: A preapproval typically involves a hard inquiry on your credit, which may slightly impact your credit score.
• Specific loan offer: Preapproval provides a concrete loan offer, including a set interest rate and loan terms, making it more binding than prequalification.
• Improved negotiating power: With a preapproval letter, you essentially become a “cash buyer” in the eyes of the dealer, which can make it easier to negotiate the vehicle price and other terms.

When to use preapproval

Preapproval is ideal when you’re ready to start shopping seriously and want a precise loan amount in hand. Preapproval shows sellers that you’re a committed buyer with financing ready, allowing you to shop with confidence. Affinity Federal Credit Union can provide a preapproval that gives you competitive rates, a set loan amount, and the flexibility to choose a car within your preapproved range.

Prequalified vs. preapproved: key differences

Pros and cons of prequalification and preapproval

Pros of prequalification

• No impact on credit score: Since it uses a soft inquiry, it doesn’t affect your score.
• Quick and simple: Prequalification is a quick process that helps you assess potential loan options.
• Early budgeting tool: It’s a useful first step to see what you might be able to afford before committing.

Cons of prequalification

• Less accurate: Since it’s based on limited information, the loan amount and interest rate aren’t guaranteed.
• Less leverage in negotiations: Dealers may view prequalified buyers as less committed than those with preapproval.

Pros of preapproval

• Clear buying power: With a specific loan offer, you know exactly how much you can spend.
• Stronger negotiating position: A preapproved buyer is seen as serious, making it easier to negotiate a better deal.
• More accurate rates and terms: Preapproval reflects your real credit situation, providing more accurate loan terms.

Cons of preapproval

• Required hard credit check: Preapproval may result in a small dip in your credit score.
• More documentation needed: Preapproval requires verification of financial information, making it slightly more time-intensive.